Editor's Blog

Hotels and OTAs need to smoke pipe of peace

Fri 11 May, 2018 at 12:00 am

Hotels and Online Travel Agencies (OTAs) have been at loggerheads over the issue of rate parity for a long time but will need to work together to maximise revenues. Hotels and OTAs have their own competitive advantages and limitations, but will have to formulate a collaborative strategy that maximises revenues, builds brand confidence and rewards consumer loyalty. While hotels have the micro information, OTAs have the purchasing and booking habits of consumers. In the evolving landscape, it is crucial that hotels understand direct bookings do not matter like they did in the past. Instead, establishing a collaborative approach, with the help of technological advances which maximises revenues, should be the focus. The essence of rate parity is to have the same rate for the same product across all distribution channels. However, rate undercutting has created stress between hotels and OTAs and, as a result, significantly reduced consumer confidence in brands.

According to a report entitled ‘Alternative Accommodation – Driving Growth for Destinations or Disruption’ published by Colliers International, rate parity agreements have led to a turbulent relationship between hotels and OTAs in recent years.

Filippo Sona, head of hotels MENA at Colliers International, said: “Consumers are comparative shoppers, so when they see that the rate on a hotel website is higher than an OTA for the same product, this creates a negative sentiment about the brand in their minds. As the undercut rate percentage by OTAs increases, there is a drop in the booking conversion on the hotel’s website. Today’s consumers have a more sophisticated mind set and level of needs, and as a result, rate parity is hindering the ability of OTAs to make more money and hotel companies to offer higher average room rates. If we removed the rate parity mechanism, we would be able to more effectively fulfil the needs of OTAs and hotels, while providing a more personalised product to consumers.”

In my opinion, the first emerging tool will be dynamic commissioning. This will enable hotels to set a hurdle rate for OTAs, in turn incentivising OTAs to sell above that rate to earn a higher commission. Based on the Colliers’ research, it is suggested that for every US$10 above the hurdle rate, OTAs earn an extra five per cent, with the maximum amount of possible commission capped at 35 per cent. I think in this manner some equitable acceptance mechanism can fall into place.

The second approach is nano pricing which provides consumers with the power of choice and added confidence in brands. Today, hotel room prices are based on three factors: room view, room type and number of occupants. However, nano pricing is calculated by combining base price (room inclusive of limited amenities) with the cost of any requested extras (for example, upgraded toiletries).

With continuous technological advancements in the online travel market such as metasearch engines, blockchain and augmented analytics, new strategies need to be devised to win back consumer confidence and increase their brand loyalty.

Paula De Keijer, senior director of market management Middle East, Africa, Greece & Turkey, for Expedia Group, said: “With the consumer in mind, blockchain technology provides services such as secured payment, identification and security, simplified loyalty programmes and baggage tracking. As we look to the future, augmented analytics will provide consumers with the power to make more informed choices. Considering the vast amount of data that hotels and OTAs accumulate, this technology is the perfect tool to understand consumer behaviour, preferences and booking patterns. Combining algorithms, artificial intelligence and machine learning will lead to providing better recommendations to customers and matching them to the properties best suited to their needs.”

Whatever be the peace pipe that both sides need to smoke, the finale has got to envisage peaceful co-existence in order to optimise each other’s long term financial health and the sustenance of the interdependence of functions.

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